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Skip to 0 minutes and 6 seconds I think one of the most exciting stories about Africa has been the fact that throughout most of the 20th century Africa really was not performing all that well economically. That’s all changed. Back in the 20th century, Africa was regarded as being a hopeless continent. Now it’s regarded increasingly as the continent of hope and aspirations. Why this change? Well the visible evidence lies in the fact that back in the 20th century economic growth in Africa averaged barely 2%. So far this century’s average is close to 6%. Let’s dig a bit deeper. Why 2, now 6? What we need to recognize and remind ourselves that a big part of Africa’s economy revolves around various kinds of natural resources.

Skip to 0 minutes and 54 seconds So it stands to reason natural resource prices are falling, Africa’s economic growth will suffer accordingly. Of course, if natural resource prices pick up, Africa’s growth rate benefits. And indeed, we find that throughout most of the 20th century natural resource prices dwindled downwards. Hence, unsatisfactory growth. For the first 11 years of this century natural resource prices bloomed. Hence, much better economic growth. Why then did natural resource prices bloom in the first 11 years of this century? A big reason is China. A unique feature of the Chinese economy is that close to 45% of their economy stems from manufacturing. That sector requires lots of natural resources, which they buy from Africa.

Skip to 1 minute and 45 seconds So put it all together and we discover that in the last decade or so whenever Chinese growth rate has improved, so too has that of sub-Saharan Africa. Whenever China’s growth rate has declined, so too has that of sub-Saharan Africa. On average, in the last ten years or longer, China’s growth rate has been pretty healthy. Therefore, so too has been Africa’s. So one reason for this change in trend in growth with Africa is certainly the growing links with China. It’s not just that, a few other good things have happened in Africa. Such as, a growing realization by African governments, and reserve banks, central banks that you do need fiscal and monetary stability.

Skip to 2 minutes and 32 seconds And so we find, on average, that government debt in Africa is much lower than 20 or 30 years ago. We find inflation is moving downwards in Africa. During the first 10 years of the 21st century, the average inflation of Africa was barely 7%, compared to way above 20% in the 1990’s, above 40% back in the 1980’s. This is not only good for the economy, but also helps to attract foreign investment. As does the fact that Africa is becoming more and more technologically digitized. I mentioned in an earlier talk the story of cell phones in Africa. I mentioned earlier the story of more and more African people getting access to a bank account via mobile banking.

Skip to 3 minutes and 22 seconds And then, like most other parts of the developing world, you’ll find a growing number of middle-income consumers in Africa. Some estimates reckon that by the year 2030, there’ll be an additional 200,000,000 middle income consumers in sub-Saharan Africa. All of these factors both explain why growth in Africa has improved, and also help justify why growth might remain buoyant for the next couple of decades. On the downside we have to be aware of some very real obstacles to economic growth and development in Africa. And none of these are new ones. We all know about very real infrastructure constraints. As an example, if we include South Africa, then the whole of sub-Saharan African produces no more electricity than that state.

Skip to 4 minutes and 15 seconds If we exclude South Africa, the remaining 46 countries, about 800,000,000 people, produce no more electricity than Netherlands and Belgium added together. Railway and road infrastructure is often impediment to growth and development. Disease, obviously, plays a role. All kinds of diseases, ranging from bilharzia, Andench fever, Ebola virus, to malaria, and TB, and naturally HIV and AIDS often has the effect of a resulting premature death at a very early age young children and / or people still living in the prime of their lives. Thereby rubbing out a much needed skilled human capital. Education and training lags way behind the rest of the world. Things are improving, but nonetheless globally about 85% of all adults can read or write.

Skip to 5 minutes and 13 seconds In sub-Saharan Africa one third of adults cannot read or write. That’s obviously holding Africa back in terms of socioeconomic development. But perhaps the biggest risk for many African countries is the continued own reliance on natural resources. As I said a few minutes ago, that’s great when natural resource prices are rising, but natural resource prices don’t always rise. What goes up tends to come down again. We’re seeing it right now. Since 2011 we have seen natural resource prices, including the oil price, falling quite substantially. And to those countries that still rely heavily on such resources, this, of course, could slow down their economy. So in conclusion, if you’re looking ahead now to Africa, we generalize it, which we shouldn’t really do.

Skip to 6 minutes and 4 seconds We could probably say that for the majority of countries, their continued success or failure will rest upon how they answer two key questions. One key question is, will they manage to bring about more effective leadership in governance? Second key question, will they manage to reduce the reliance on natural resources and become more diverse? Time will tell.

African economics

In this video, we will discuss why Africa did not perform very well economically during the 20th century, and how that has since changed.

After watching the video, do some more research on the reasons for the economic growth in Africa. Were there other contributors besides natural resources being sold to China?

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This video is from the free online course:

Futurism and Business: Dealing with Complexity

University of Stellenbosch Business School Executive Development